1.

1 INTRODUCTION
This is the first unit of the course “Business Policy and Strategic Management”. In this unit we
are going to discuss briefly about business policy. Organization is a group of people coming
together to achieve common goals. It consists of many people. There is separation of
management and ownership. Hence it becomes essential to issue guidelines to manage the
business by the people. The top management lays down broad guidelines or general limits
within which managers have to decide their course of actions to deal with a particular situation.
The guidelines lay down by the top management act as guiding force for decision making by
the functional managers. The general statements or understanding which guide thinking and
action of subordinates is called ‘policies’.

1.2 OVERVIEW OF BUSINESS POLICIES

The word ‘Policy’ is derived from the Greek word ‘Politeia’ meaning policy or government. In
the autocratic system the policies are framed by the leader whereas in the democratic system
the policies are framed by the people.
The Dictionary meaning of ‘policy’ is a ‘planned action’ and that plan is a policy. Hence policy
and plan are synonymous. According to Flippo, Policy “is a man made rule of pre-determined
course of action that is established to guide the performance of work toward the organization
objective. It is a type of standing plan that serves to guide subordinates in the execution of their
task.”
According to George R. Terry, meaning of Policy is “ A verbal, written or implied overall guide
setting up boundaries that supply the general limits and directions in which managerial actions
will take place.”
Policies are statements of the organization framed in light of its objectives in the various areas
with which its operation are concerned- personnel, finance, and production, marketing and so
on.
Every time it is not possible to meet the top management and ask about the action to be taken
in a particular situation. Therefore, general guidelines are framed by the top management.
These guidelines or policy are the boundaries within which the subordinates can make
decisions. The lower level management can handle situation by referring to these guidelines
without having the need to meet top management each time.
Policy can be developed for any type of business activity. It can be related with product, pricing,
promotion, finance and so on. Statement that codifies such guidelines is called policy
statement. Policies highlight the thinking of the top management.

1.3 FEATURES / CHARACTERISTICS OF POLICY

Policy has a key role to play in business management and administration. It helps the
management to achieve the desired goals. It also ensures a business firm to have an effective
and efficient operation in a more economical manner. The policies are framed the top
management and it is implemented at the bottom level. The policy should be definite, positive
and understandable to everyone in the organization. Definite and clear policy helps to avoid
involuntary deviations from accepted course of action. It ensures that the actions of individual
managers are consistent over the time. The nature of business policy depends upon the nature
of objectives and the needs of the Organisation.
Following are the characteristics of policy:
1. Simple: A policy should be as simple as possible. It should be codified in a clear and easily
understandable terminology. Such policy formulation will enable the line managers to interpret
in a right way.
2. Clear: There should not be any ambiguity in the policy. It should be\ clear and not confusing
one. Use of technical jargons should be avoided. The words which carry dubious meaning
should be avoided.
3. Flexible: Policy should be flexible. It should be reasonably stable. It\ should be altered or
modified very often. It should remain in force for a long time. In order to make it usable for
long time it should be lexible also. The intention of flexibility is to make the policy usable in
repetitive situation by the lower managers.
4. Certain: Policy must be definite and concrete. This gives confidence to the line mangers.
5. Consistent: Policy should be consistent. A consistency leads to smoothness of action by the
subordinates while handling recurring problems.
6. Relevant: Policy should be relevant to the goals of the organization. They should relate to
the current business situation and environment.
7. Comprehensive: Policy should cover broader area of business. A comprehensive statement
of policy ensures flexibility in decision making. It also avoid the line managers to approach the
top management frequently.
8. Stable: A policy should be reasonably permanent and stable. Constant change in the policy
makes its implementation difficult. Unstable policy creates uncertainty in the mind of those
who refer to policy for guidance. It is not intended that policy should be permanent forever; it
should have provision of flexibility depending on the situation. Policy should have capability
of adjustment to meet future changes. It should be based on sound judgment.

1.4 IMPORTANCE / ROLE OF BUSINESS POLICIES

Policies are the key for success of the business. Policies offer great advantages to the
management if they are stated with clarity. It raises the confidence of the line managers. They
make the decisions within given boundary. The managers act without the need for consulting
the senior managers every time which minimizes the need for close supervision. It also builds
the confidence of the managers. The importance of business policies are discussed as follows:
1. Control: Policy facilitates effective control on the working of the orgainsation. It indirectly
controls the managers at different level without directly interfering in their routine working.
2. Effective Communication: Generally policies are written and well drafted statements.
Hence there is not a remote chance of confusion or miscommunication. By setting policies the
management ensures that decision made will be consistent and in the best interest of the
organization. Clearly laid down policies try to eliminate personal hunch and biasness.
3. Clarity: Policies clarifies the view point of the management for the purpose of running a
particular activity/activities.
4. Motivation: Policy enables the line mangers to be self reliant. They take the decision on
their own in the confined border of the policy. This raises their confidence and motivates them.
A well drafted policy provides a pattern within which delegation of authority is possible.
5. Policy Review: Regular review of policy is must to see to it that the existing policies are
relevant in the given situation. If required policy may be modified or altered depending on the
business environment. Review of policy at regular intervals provides a method of anticipating
future conditions and situations and helps to resolving how to deal with them.
6. Economical and Efficient: Policy enables the management to carry out its operations
effectively and efficiently. It enhances the working of the organization.
7. Coordination of Efforts: Policies ensure coordination of efforts and activities at different
levels in the organization. Activities and duties are assigned in such a way that all activities in
the organization are integrated effectively. Policy coordinates with individual efforts.
8. High Morale: A well crafted policy can raise overall morale of an enterprise. Policy enables
the mangers to understand the intention of the management.

1.5 DEFINITIONS: Policies, Procedure, Process, Programmes

Definitions of the term Policy, Procedures, Process and Programmes are stated below:
Policy and Procedure:
Ralph Devis defined “Policy is a statement of a principle or group of principles, with their
supporting rules of action that conditions and governs the achievement of certain objectives to
which a business is directed.” Policy is an internal law which guides the administrative actions
in the organization. Policy indicates the intention of the management. It serves as the guidelines
within which decision makers are expected to operate. Policy is an aspect of planning, a guide
for making administrative decisions and it indicates the way of doing the things. Procedures
indicate certain steps to carry out a particular work. A statement of procedure is more specific
and concrete than policy. It highlights the chronological sequence of carrying out a particular
activity. Procedures involve planned sequence of operations. For example, every organization
has its unique procedure of processing order, payment collection or providing after sales
service. Procedures are used to indicate how a routine work can be performed. They are the
means by which decisions are implemented. Procedures needs to be reviewed and updated.
This leads to work simplification, rationalization, increased efficiency and reduced costs.
The following table depicts the difference between the Policy and the Procedure:
Difference between the Policy and the Procedure
Policy Procedure
Policy acts as a guide in decision making Procedure is guide to action.
process.
Policy is an aspect of planning. It is detailed plan indicating steps
of carrying out a particular activity
or event.
 Policy to some extent has flexibility which Procedure is a rigid in nature. No permission
provides room for managers to use to use discretion.
discretion.
Policies need to be interpreted by its users It lays down sequence in a particular activity
while using it. is to be carried
out.
Policy may be written, oral or implied. Procedures are always in writing.
Policy is the creation of top management. Procedures are developed by the line
managers.

Policy and Process: Policy is a set of guiding principle used to set direction in an organization.
A procedure is a series of steps to be followed as a consistent and repetitive approach to
accomplish an end result. The difference between processes and procedures can be termed as
breadth and depth. A process defines the big picture. It highlights the main elements of
business–breadth. A procedure captures those elements and adds more information for
functional responsibilities, objectives, and methods–depth.
Programmes: According to Oxford Dictionary Programmes means “A set of related measures
or activities with a particular long-term aim”. Eg. An extensive programme of reforms.
Business Dictionary defines programme as “a plan of action aimed at accomplishing a clear
business objectives, with details on what work is to be done, by whom, when, and what means
ot resources will be used.”

1.6 TYPES OF BUSINESS POLICIES

Business policies are classified on several bases. They may be classified into several categories,
which are discussed as follows: Now we shall discuss the types briefly.
A) According to the Nature of Origin:
a. Originated Policy: These policies are formulated by the top management or managers. The
purpose of this policy is to serve as guidelines to the subordinates and their working. The policy
act as guide for the managers at the lower levels. The policies are formulated for the benefit of
their own subordinates. Eg. Marketing Head may formulate policies and handover to the junior
executives for implementation. The policy formulated by the marketing head is called as
Originated Policy.
b. Imposed Policy: The policy imposed by some external forces like state or central
government. The policies are binding on the organization. Labour ministry formulates policy
as regards to labour are binding on the organization. It cannot be avoided.
c. Appealed Policy: When certain exceptional situation arises at that time the manager may
make an appeal to his superior for deciding on such problem. The policies are framed to handle
such current unpredicted situation. Formulation of appealed policy on regular basis may hinder
the work performance. To avoid this appealed policy should be replaced by the originated
policies.
B) According to the Organizational Structure:
a. Internal Policy: Internal policies are designed by the management and act as guidelines to
the subordinates. It establishes rules and parameters within which subordinates have to operate.
It creates realm for subordinates working. The examples of internal policies are recruitment
and selection policy, budgetary policy etc.
b. External Policy: Such policies are framed to tackle the external problems. Organizations
redesign or frame new policy in reply to the environmental factors or forces. eg. Change in
pollution norms by the state government will compell the organization to reframe their
environmental policy in accordance with the changed norms. Hence a change in policy on
account of external factors like enactments and circulars of government is an example of
external policy.
C) According to the Mode of Expression:
a. Written Policy: Policies expressed in the form of written statements are called as written
policies. It avoids confusion and misunderstanding. It is always advisable to have policy in
written format. These policies define boundaries within which decision needs to be taken by
the subordinates.
b. Oral Policy: A policy issued mere by word of mouth is termed as oral policy. These policies
are easy to communicate as compared to written policy. Oral policies are simple and quick to
exercise. If the policies are not defined clearly it may create confusion amongst the employees.
With the passage of time there are chances that the policy may be forgotten or misinterpreted.
c. Implied Policy: Implied policy is neither written nor oral policy. It is being followed
conventionally. Such policies can be inferred from the mere behavior of subordinates or
managers. They are not explicit or expressed policies. Eg. Company produces goods in the
price range which is comfortable to middle class people. This indicates that the intention of the
company is to serve the middle-income groups.
C) According to the Importance:
a. Basic Policy: It implies the fundamental philosophy of the enterprise. Basic policies are
framed by the top management.
b. Major Policy: These policies are concerned with the major issues and concern of the
organization. Eg. Promotion Policy, Distribution Policy etc.
c. Minor Policy: To tackle routine matters, minor policies are decided by the line managers. It
may relate with the amount of discount, time of delivery of product etc.
D) According to the Scope:
a. General Policy: These policies are framed by the middle level management.
b. Specific Policy: Policies which are not general are specific policies. Eg. Departmental policy.
c. Directive Policy: A directive policy is essential when decentralized discretion is not possible
or when it may be contrary to the best interest of the company as a whole.
E) According to the Levels of Management:
a. Top Management Policies: These policies generally cover long range planning. They are
decided by the top management. E.g. Budgeting
and Product Launching etc.
b. Upper Middle Management Policies: These policies are decided by the departmental head.
But while framing such policies, manager should link it with the major policies of the
organization.
c. Middle Management Policies: The superintendant or junior manager frames these policies.
The policies may relate to sales, finance etc.
F) According to the Situation:
1. Normal Policy: To guide employees about day to day work such policies are framed. Future
is uncertain and unpredictable hence these policies act as guidelines to the employees.
2. Contingent Policy: These policies help the subordinates to handle uncertain and abnormal
situation.
G) According to the Function:
1. Administrative Policy: These policies are concerned with the administration of the
organization. It covers broad area of administration. Such policy aims at controlling the staff.
2. Composite Policy: It is a policy that is made out by combining the policies submitted by
every department. Each department submits their policy to the budget officer who prepares
consolidated statement in a coordinated manner. Such policy statement when approved by the
Board is called “Composite Policy”.
3. Supplementary Policy: The issues not covered by the composite policies are covered under
supplementary policy.
4. Departmental Policy: The policies prepared by individual department for their routine
working are called as departmental policies. Eg. Personal Department Policy.

1.7 POLICY STATEMENT

A policy statement relates to organization’s expectations for the employee behaviour. The
behaviour can be confined as work behaviours or personal behaviours at the workplace.
Authoring and implementing a policy statement indicates expectations of employee behaviour
by establishing rules. These rules are to be strictly followed by everyone in the company.
According to Business Dictionary, Policy Statement is “a formal document outlining the ways
in which an organization intends to conduct its affairs and act in specific circumstances”.
Collins Dictionary defines it as “a declaration of the plans and intentions of an organization or
government”.
A Policy Statement is an organization-level document that prescribes acceptable methods or
behaviours. A policy is simply the way things are done within an organization. Some policy
statements may require acknowledgment from the employees. For example, if the policy relates
to sexual harassment, company may want to have employees sign a form acknowledging their
receipt of the policy. Every employee will abide by it.

1.8 CORPORATE/ORGANIZATIONAL CULTURE

According to C O Reilly, Organizational culture is the set of assumptions, beliefs, values and
norms that are shared by an organization’s members. It is very essential to understand the
impact of organization culture in policy formulation, In the Mckinsey’s 7-s framework model
developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at
the McKinsey & Company consulting firm, Culture represents the seventh S i.e. Shared Values.
It is the culture which shapes or moulds the soft S in an organization. Culture is not created by
declaration, it is generally unwritten or unstated assumptions, values and beliefs etc. Culture is
one of the internal aspects of an organization that need to be aligned for success of the
organization. The McKinsey 7-S model is useful for
Improve the performance of a company.
• Examine the probable effects of future changes within a company.
• Align departments and processes during a merger or acquisition.
• Determine how best to implement a proposed strategy.
The McKinsey 7-S model involves seven interdependent factors which are categorized as either
“hard” or “soft” elements. “Hard” elements are easier to define or identify and management
can directly influence them which includes Strategy statements, organization charts and
reporting lines (structure), and formal processes and IT Systems.
“Soft” elements, on the other hand, are more difficult to describe. They are less tangible and
more influenced by culture. These include Shared Values, Skills, Styles and Staff. But for the
success of the organization both Hard and Soft elements are important. The seven S are as
follows:
• Strategy: Action plan devised to maintain and build competitive
 advantage over the competition.
• Structure: Way the organization is structured and who reports to whom.
• Systems: Daily activities and procedures that staff members engage in to get the job
done.
 Shared Values: called “super ordinate goals” when the model was first developed, these
are the core values of the company that are evidenced in the corporate culture and the
general work ethic.
• Style: It denotes the style of leadership adopted.
• Staff: The employees and their general capabilities.
• Skills: the actual skills and competencies of the employees working for the company.

The most important feature of organizational culture is sharing common beliefs, values, attitude
and feeling etc. V. Sathe (1985) has highlighted on four components of sharing organizational
culture i.e.
i. Shared things (e.g. the people dress)
ii. Shared saying (e.g. let’s get down to work)
iii. Shared action (eg. a service oriented approach)
iv. Shared feelings (e.g. hard work is rewarded here)
Values, beliefs and assumptions are expressed in tangible forms like power structures, routines,
rituals etc. The culture web as explained by Johnson and Scholes (2006) includes factors like
rituals and routines, stories, symbols, power structures, organizational structure and control
system. He has shown paradigm in the figure of the centre, as over a period of time it may shift
i.e. there may be change in the cultural state or pattern. This may be slow evolutionary process.
Sometime the cultural pattern change in an organization due to style effect of a new leader. If
the leader believes in democratic way of working, it may work upon the way employees think,
believe and express themselves . Their behaviour or mindset changes and they get mould in the
leader’s style. The best example of this is Mr. Krishnamurthy. When he took over as a chairman
of SAIL he used non- surgical strategy of turnaround. He had worked for more than six months
on the mindset of the employees and moulded their thought process and behaviourial pattern.
This has led to paradigm shift in SAIL’s organization culture.

1.8.1 Relating Culture to Policy Formulation

Culture includes ideologies, values, beliefs, attitudes, opinion, frames; discourse; spoken,
written, or signed language; and any material object to which meaning is attached. Each shapes
making of policies.
A strong culture will have positive impact on the overall working of the organization. It binds
the organization together. Strong culture contributes to productivity, efficiency and growth. On
the other hand weak culture will end into loose behavioural system. There will be lack of
commitments towards achievement of organizational goals and objectives. Strong culture
facilitates formulation of effective policies and on the contrary weak culture creates resistance
to change and hinders or delays formulation and implementation of policies. One can’t afford
to ignore corporate culture while framing policies. Policy formulator needs to access the culture
and based on that they needto formulate guidelines to the employees.
Cultural paradigm goes beyond the corporate terminology. The culture is rooted in the country
where the corporate operates. This is the reason why it is difficult for the corporate to change
its culture.
The cultural heritage of a particular country creates general cultural environment to the
businesses. In this general environment organization creates and develops their own business
and work culture. Every country has its unique culture.
For example, Japanese attach a great significance to loyalty and it calls out for consensus, a
concept called Wa. Wa requires that all members of a group agree and cooperate. This involves
continuous discussion, consensus and compromise. Japanese companies evaluate business
decisions in terms of effect on the group’s Wa.
Formal meetings are conducted in informal environment and surrounding to build
relationships. Japanese managers are characteristically reserve and quite whereas American
managers are generally talkative, impulsive and direct. Life in the US and life in Japan is very
different. Americans give more freedom to individual than Japanese to control their own fate.
S. Shereman explains cultural differences in Forum ‘How to Beat the Japanese’ : “America is
not like Japan and can never be. America’s strength is opposite; it opens doors and brings the
world’s disorder in. It tolerates social change…….
They (Americans) break away from their parents’ religion… they rediscover their ethnicity” A
sound organizational culture is always conducive for policy formulation. Therefore, efforts
should be made to build strong sound corporate culture. Building sound organizational culture
has been the concern for many companies. Researches have been undertaken to evolve ways
and means to develop and devise sound organizational culture; the culture which is positive,
proactive and supports organizational philosophy and values.